‘Disappointing’ drop in BCI not a signal of protracted recession despite GDP contraction

The manufacturing BCI remained at a low level and eased further during the period to 26
The RMB/BER Business Confidence Index (BCI) fell from 42 to 39 in the third quarter, with 61% of the 1 200 senior executives surveyed in August unsatisfied with prevailing business conditions.
Confidence among retailers and wholesalers remained comparatively high, while a notable improvement in sentiment among new vehicle dealers partly offset a 17-point deterioration in building confidence.
The manufacturing BCI remained at a low level and eased further during the period to 26.
The slump in the index below 40 came as Statistics South Africa reported on Tuesday that the gross domestic product (GDP) contracted 0.7% in the second quarter, a period that was negatively affected by load-shedding, floods in KwaZulu-Natal and industrial unrest.
RMB chief economist Ettienne le Roux described the decline in the BCI as “disappointing”, but said it was unlikely to point to another “outright contraction in real GDP”.
Confidence among retailers and wholesalers remained well above long-term averages, which “speaks to the surprising resilience of consumer spending” at a time when falling inflation in due course should ease the pressure on disposable income.
Simultaneously, underlying activity in the building as well as the manufacturing sector is stronger than third quarter confidence figures seem to imply.
In addition, fixed investment in manufacturing, after a temporary drop in the second quarter, resumed its upward trajectory to a level that is now close to its long-term average.
“None of this is to say that the economy will experience strong growth in the year ahead,” Le Roux stressed.
“External headwinds are mounting, interest rates will continue to rise while the danger of summer power outages is ever present.
“But suggestions that the economy is now in the throes of a protracted recession after yesterday’s GDP release, is an overstatement.”
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